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WARM WELCOME to THE RETIREMENT PLANNER, Kingsland Court's Newsletter. For some time now we have been thinking of how we could make a relevant and useful contribution to the retirement benefits industry in Kenya, both at a broad industry-wide level and at the level of the individual stakeholders (besides, of course, being every retirement plan's essential partner!). So this is what we have come up with.

We propose initially producing THE RETIREMENT PLANNER every quarter. In each issue we shall address 2 or 3 burning topics. We may not come up with all the answers, but we certainly aim to give you food for thought.

To start off with, here is a topic close to many hearts: Risk Management for Pension Schemes

Inhabitants of another planet looking down at Kenya may think that in the lifebefore the RBA there were no risks! Or at least, if they existed, they were not a great cause for concern. Now nearly every trustee has sleepless nights, worrying. Of course the truth is, the risks were always there, but they were not always fully recognised or addressed.

In this first issue of The Retirement Planner we shall briefly describe the main risks that Trustees are likely to face in their duties. In subsequent issues we shall examine each risk in detail.

Investment risks, control risks, compliance risks, systems risks - these are just the headline risks which concern the Trustees of retirement benefits schemes. In these times of much more professional regulation (and you can be sure its scope will expand) the range and complexity of risks is becoming ever greater. Now that it is necessary for retirement benefits schemes to employ external providers of the most risk-laden services, i.e. asset management and custody, and employers are increasingly withdrawing from providing themselves the other key service, administration, it is all too common for stakeholders to believe that by outsourcing they have hedged all the main risks. WRONG! They have merely changed them. In some respects the risks have become greater, or at least more complex.

So how to manage these risks? The first step must be to draw up a risk register containing all of the circumstances where the Trustees (and other stakeholders) are exposed to risk. Each of these circumstances should then be categorised as to its likelihood. Then the impact of each risk must be assessed and a plan drawn up to address each area of risk.

The regulation of asset management and custody does go some way to building a framework for managing investment risks BUT IT DOES NOT MANAGE THEM FOR YOU. Investment guidelines are only guidelines. Activity within those guidelines cannot simply be left to the asset manager, no matter how good he is, and it is worth saying that Kenya has some pretty good asset managers. The asset manager needs to work with the Trustees, not just for them. Trustees must be interested and alert, because they are accountable to the members, the sponsor and the regulator.

The main unregulated area where risks need to be addressed is administration. Accuracy of scheme data, compliance with TDRs, accuracy of benefits calculations, correctness of pension payments, regulatory compliance - these are good areas to address first. Let's briefly touch some of the possible risks in each of these areas.

Accuracy of scheme data

Many schemes have a long and complicated history, but with no segregated data maintenance - "that's HR's job" is heard all too often. "Since when could HR ever be relied on to maintain accurate personnel data?" did we hear? Segregated data maintained and verified by the administrator is essential. Regular data audits can help to set minds at rest on the accuracy of past service records. If problems are discovered, a recovery plan can then be put in place. In the next issue of The Retirement Planner we shall discuss how historical data is important in the development of a pension scheme and different types of audits that can be carried out on historical data.

Scheme Benefit Calculations

Inaccurate calculations all too often result in incorrect payments being made - and the cause is usually a combination of incorrect data and misunderstanding of the Rules or application of the wrong Rule. How many Trustees actually check the administrator's calculations?

Pensions in Payment

Pensions in payment should be audited on a regular basis. Scheme administrators should regularly check that pensioners are still living. The easiest method for avoiding error, or fraud, is to put in place measures to prevent it before it happens by setting up appropriate verification and authorisation procedures, independent of the administrator.

WATCH THIS SPACE FOR MORE TERRIFYING INSIGHTS! If you would like to subscribe to future issues please let us know by return email.